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It's a Mutual Win-Win

Tuesday, 03 January 2012 00:00

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The India visit of Japanese premier Yoshihiko Noda culminated in a joint statement by the two countries' prime ministers enshrining their vision for enhancing the "India-Japan strategic and global partnership". This encompassed a gamut of projects and activities related to infrastructure, industry, finance, education, technology, environment and security, which Japan would support with financial and technical assistance.

The Delhi-Mumbai Indus-trial Corridor (DMIC) is among the most prominent projects drawing Japan's public and private finance totalling $4.5 billion over the next five years. Dovetailing the ambitious 1,483 km dedicated rail freight corridor linking Jawaharlal Nehru port to Tughlakabad in Delhi, DMIC is fortuitously akin to Japan's Taiheiyo beruto (Pacific belt), comprising an urbanisation zone harbouring a population of around 83 million, and extending over a length of some 1,200 km.

Japan is a technology and capital-rich country with an aging and declining population. India is a capital-poor country poised to reap a major demographic dividend, with a burgeoning market and hunger for investment. With two varying cultural strands, both need to foster strengths of commonality. India is as heterogeneous as Japan is homogeneous. But, much like India, where centuries coalesce, the old juxtaposed with the new, Japan deftly blends tradition with modernity. Again, like India in many ways, Japan is reckoned to be a contented society that's also consensual. The latter considers "wa", harmony, to be its bedrock that discourages risk-taking and, in a way, militates against a culture of individuality.

Japan's economic miracle is traced to the culturally derived capacity of the Japanese to cooperate with each other, as expressed in terms like "rolling consensus", "private collectivism", "spiderless cobweb" and "Japan Inc". Japan's special advantage is also ascribed to lifetime employment, the seniority wage system and enterprise unionism.

Rising phoenix-like post-World War II, Japan was hailed as the land of the rising sun. Only six years ago China's economy - which has now overtaken Japan's - was half as big as Japan's. During 1946-1976, Japan's economy grew 55-fold, accounting for 10% of the world's economic activity, with only 0.3% of the world's surface and supporting just 3% of its population.

But Japan had a strong eco-nomy embedded in a weak structure - sick banks and the highest government debt burden among G-7. The government spent huge amounts on 160 "special corporations", equivalent to $41 billion in annual subsidies. According to economists Jeffrey Sachs and Paul Krugman, Japan's slow growth in the 1990s was due not to low productivity and insufficient supply, but inadequate demand. Centuries of uncertainty and apprehensions about natural disasters made the Japanese thrifty. Japan's aging population wants to save more than its enterprises can profitably invest.

Japan is fast growing old. The 65-plus comprise 19% of Japan's population, and could reach 30% by 2025. The number of workers supporting each pensioner fell from 10 in 1950 to four in 2000; it's estimated to fall to two by 2025. No less than 70% of the country's budget goes to the elderly, and only 4% is aimed at childcare, reinforcing the low birth rate. Against this backdrop of Japan's shrinking active workforce, India has almost 40% of its population below 18. By 2015, some 550 million Indians would be under 20 years of age.

The first country to receive Japan's ODA assistance in 1958, India has been the largest among its beneficiaries. Except the brief strain after the 1998 nuclear test, relations have been free of serious differences. As India embraced socialism and non-alignment and Japan moved into a different economic orbit, the latter largely looked upon India as a nation deserving aid rather than trade. A slow process of rediscovery followed reports of India's potential to grow into an economic powerhouse. One in 2005 by JETRO found that Japanese companies were doing better in India than in Asean.

For India, Japan offers opportunities for absorption of technical and skilled manpower. Many Indian IT firms have a presence in Japan and Indians are employed in basic research in high-tech companies and government research institutes. To service the Japanese market, software companies need to adopt a proactive investment strategy. The other major area requiring attention is biotechnology and the medical sector. Japan is the world's second largest market for pharmaceutical products.

India may seek more assistance for big-ticket projects like high capacity rail freight corridors, high-speed passenger trains, expressways etc, besides specific weapons systems. When India first opened up to foreign investment, Japan appeared a natural partner. Perhaps finicky about India's anaemic supply chain, labyrinthine procedures, creaking infrastructure, tax structure and labour laws, Japan fought shy. The space was taken by countries like South Korea.

Now there's renewed interest among Japan Inc. As Japanese behemoths restructure and streamline their own production processes, Japan will maintain its edge in sophisticated technology sectors. Japanese firms hold more than 70% market share in 30 industries each worth over $1 billion in annual sales, from digital cameras to car navigation devices, according to 2008 data.